At the start of a hectic week on the headline numbers front, this is what Wall Street’s leading indicators look like:
- The Nasdaq rose 0.6 percent.
- The Dow Jones rose 0.2 percent.
- The Standard & Poor’s 500 Index rose 0.4%.
On the list this week, August inflation numbers on Wednesday, followed by retail sales and PPI numbers on Thursday are the highlights. These will be the last data points for the Federal Reserve, which will make its next interest rate announcement on Wednesday next week.
In the market, it is almost fully priced in, as the interest rate will remain calm in the range of 5.25 to 5.5 percent.
At the same time, US government short and long interest rates remain at elevated levels. The two-year interest rate is just under 1%, so it is only a few basis points away from the 2023 peak that came in March. The percentage of 10-year-old children is about 4.3 percent, which is the highest level since 2007.
It was oversubscribed five times
Meanwhile, what is expected to be the largest IPO of the year is also fast approaching. The Softbank-owned, UK-based chip maker has spent the past week scouting the market for investors it will bring with it when the company is listed on the New York Stock Exchange.
According to unnamed sources Financial Times We’ve been told that it has been oversubscribed five times, with the result that the subscription period has now been shortened by one day, to Tuesday. Pricing is expected to be finalized on Wednesday, and could reach the top tier at up to $51 apiece.
In this case, the company would be valued at about $50 billion.
Being strategic investors, or cornerstone investors as they are called in the industry, the company has shocked its biggest clients: Apple, Google, Nvidia, Intel and TSMC are among those who have indicated that they plan to buy shares of it. Up to $735 million.
JPMorgan: Lowest recession probability in a year and a half
Since inflation started accelerating and market interest rates actually started rising in the spring of last year, talk of a recession has been going fairly steadily. The reversal in interest rates, a classic signal of recession, was fuel to the fire.
Market players who believed, to some extent, that the recession would end up being the result of a sharp rise in interest rates by the US central bank, placed their money accordingly.
“Recession bets,” as Bloomberg calls them, have moved very quickly in the government bond market. Through IPOs in companies included in the Standard & Poor’s 500 index, the 500 largest companies in the United States, market participants last October estimated the probability of a recession at 98 percent, according to an analysis by JP Morgan & Chase.
And now the slack cards have been discarded. Overall, US recession pricing is now the lowest since April 2022, with a 22% recession probability in the S&P 500.
This is after the US economy has proven that it can withstand sharp rises in interest rates surprisingly well in recent months – at the same time that inflation is falling towards more comfortable levels.
This, in turn, could mean that markets become more vulnerable to new key economic numbers, Bloomberg writes.
If there is isolated good news, such as the job market continuing to remain strong, or companies reporting higher demand, it could mean the Fed will have to raise interest rates further — which could send stocks lower.
For some investors, just good headline financial numbers are a downside scenario.
“I fear that the positive economic data we get during the day will ensure that inflationary pressure continues to bubble beneath the surface,” Maria Veitmann, chief strategist at State Street Global Markets, told the news agency.
She added that it would prevent the Federal Reserve and other central banks from lowering interest rates, which would ultimately lead to the collapse of economies.
At the same time, market participants have become less aggressive in believing how aggressively the Fed will have to cut interest rates in the face of an economic downturn. At the beginning of 2023, market participants expected that the interest rate would be cut by 1.5 percentage points in 2024, while this has now been reduced to around 1 percentage point.
In addition, the US yield curve is now somewhat less inflexible. The fact that the yield curve inverts means that short-term interest rates are higher than long-term interest rates, and this phenomenon has coincided with every recession in the past 50 years.
“I think markets will be skeptical of a recession until they see it in the eye,” said James Rossiter, head of global macro at TD Securities.
He himself believes there will be a downturn in early 2024, but adds that “often in the past year, people like me have shouted at recession predictions, only to see the world doing better than they feared.”
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